NAMBAWAN SUPER SUPPORTS SUCCESSFUL ISSUE OF SOVEREIGN BOND

PORT MORESBY, 01 October 2018:The Chairman of Nambawan Super Limited, Mr. Anthony Smaré, today congratulated the Prime Minister Peter O’Neil, Deputy Prime Minister and Treasurer Charles Abel, and the government of Papua New Guinea on the successful issue of the US$500 million sovereign bond. This follows several previously unsuccessful attempts to tap international credit markets, and Nambawan Super regards it is a sign of confidence in the economic prospects of Papua New Guinea (PNG) that the state was able to place USD 500 million of 10 year bonds at 8.375% to international investors.

PNG’s local credit markets had shown signs of reaching saturation point over the past few years, as banks and superannuation funds were approaching their maximum exposure limits in regard to investing in Treasury Bills and Government Inscribed Stock (GIS). By approaching international capital markets, the State was able to seek alternative sources of financing, unavailable to the State by further issues of local currency instruments. This is unambiguously a good thing, and in the interests of Nambawan’s members and the Fund’s ongoing local investments.

Firstly, international investors have been able to assess the ability of PNG to fund the bonds over ten years, and have clearly liked what they saw as the bond offering was several times oversubscribed. This bodes well for the bonds just issued, as a healthy appetite seems likely in the secondary market. International investors have seen the figures, and supported the bonds on the basis that the government’s fiscal discipline has led to stabilizing budget deficits and gross debt to GDP at sustainable levels. International investors have this year been reluctant to finance emerging market and frontier market bonds and equities, so it is significant that the State of PNG was able to tap such an uncertain global market.

Secondly, by increasing the sources of funding available to the State, it is very possible that the State can reduce the issue of expensive local funding. Department of Treasury and Bank of PNG are well aware of the maturity profile of State debt, and this issue will lengthen the debt profile with guaranteed longer term funding. We note that the US dollar bonds have been issued at 8.375% pa, of course in US dollars, and this compares very favourably with the most recent issue of GIS at 12.58% pa. So whilst there is currency risk, the fact remains that the US dollar bonds have been issued at a cheaper rate than local issues – a clear benefit from widening the sources of funding.

Thirdly, this issue will help alleviate the shortage of foreign exchange that has hampered business activity over the past few years. ANZ Bank recently issued a report that suggested the local currency will once again be in demand as and when large projects take off, so this supply of currency is timely. Nambawan Super’s investee companies such as Paradise Foods, Laga Industries, SP Breweries, Ela Motors and the Fund’s property developments will benefit from the availability of this foreign exchange support and this will support the Fund’s goals of delivering sustained strong returns to its members over the next 10 years.

Finally, we encourage the government to maintain its fiscal discipline, which encouraged international investors to commit to funding the sovereign bond last week. Particularly, we encourage the State to use a large portion of the bond proceeds for servicing existing expensive local debt commitments. Continued discipline is required, which will increase confidence further and improve the ability of the State to finance its debt obligations, without risking our proud history of not defaulting on such obligations.